Factors for Substantive Analytical Procedures (PADNIS) and Techniques

## Factors Determining Suitability of SAP — PADNIS Mnemonic

Before using Substantive Analytical Procedures (SAP), the auditor must assess six factors:

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### P — Predictability

SAP are more appropriate when the account balance or data relationship is predictable (e.g., GP ratio in a stable mature business, depreciation on assets at a fixed rate).

### A — Availability of Data

Effective SAP require reliable and relevant data for comparison. If the underlying data is unavailable or of poor quality, the AP will not detect misstatements.

### D — Disaggregation

The degree to which data is broken down (by product line, branch, month) affects usefulness. Highly aggregated data may mask misstatements that disaggregated data would reveal.

### N — Nature of Assertion

SAP are more effective for some assertions than others:

• Effective for: Completeness, Valuation
• Less effective for: Rights & Obligations, Existence (for individual items)

### I — Inherent Risk

• Higher inherent risk → rely more on Tests of Details (TOD), less on SAP
• Where significant risks are identified, evidence from SAP alone is unlikely to be sufficient
• The nature of ROMM (Risk of Material Misstatement) determines the appropriate mix of procedures

### S — Source / Nature of Transactions

• Routine, high-volume, similar transactions → predictable → SAP more suitable (e.g., payroll, rent, depreciation)
• Non-routine or estimation-based transactions → subject to management judgment → difficult to predict → SAP less suitable (e.g., provisions, derivative valuations)

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## Techniques for Analytical Procedures

### Reasonableness Test Illustrations:

• Loan ₹10 crore → Expected interest ₹90 lakhs; Actual ₹2 lakhs → Flag!
• Fixed Assets ₹100 crore → Expected depreciation based on disclosed WDV rate
• Real estate revenue × 1% expected brokerage; actual brokerage = 7% → Flag!